In this article, I continue the discussion of a reader’s question regarding the Bermuda Government and its global financial information-sharing agreements (IGAs/Fatca) and the role of local financial institutions to identify all of their account holders based upon certain financial thresholds, country indicia (US, UK, Canada, for starters) and related items.

On April Fool’s Day, what could be more ironic than receiving a letter from your friendly local bank, asking you to identify yourself, your connections, your citizenship(s) and your accounts yet again by completing more questionnaires and forms, such as US tax forms W-9, or W-8BEN, or CRS reporting forms?

And you think — why should I have to go through this incredibly annoying, and frustrating process?

You can choose not to comply, but there are consequences. Your accounts may be frozen, or be defined as a non-complier in reports.

Our local financial institutions (FFI’s broadly defined to include investment management, trusts, holding companies, etc) must comply as these regulations are legally mandated under the Bermuda Government agreements listed above (and described in detail in part 1, March 25, 2017).

What is involved in this individual categorisation process?

First: where are you considered a resident — is simply pure identification of who you are, where you, as an individual, are considered a resident of a country (or not); because, guess what, where you are resident is where you are most generally subject to taxation. This straightforward residence definition is adhered to by almost all global tax regimes under the OECD CRS (Common Reporting Standard) mandate. [A]

Second: the United States reporting requirements (under Fatca) are uniquely different.

The FFIs use various so-called indicia, a term that means signs or indications where circumstances that point to the existence of a given fact as probable, but not certain, ie circumstantial evidence. US indicia, for instance, can encompass the following:

• A US phone number.

?• US designated as place of birth.

?• US post office box.

?• US address, in care of.

?• Owning US property.

• Shareholder in US company (privately held).

?• US social security number.

• US ITIN, individual tax identification number.

• US tax returns or tax payments, etc

• Standing instructions to transfer funds to a US account.

US tax law, purposed by the US Internal Revenue Service, categorises individuals subject to US tax under a US persons label, a three-fact pattern involving both citizenship and US tax residency:

1. US citizens are subject to tax on their worldwide income, no matter where they reside.

2. US green card holders are treated in the same manner as US citizens, a fact often forgotten when an individual returns to a home country — never having formally abandoned lawful permanent resident status of the US.

3. A US tax resident who may not be a US citizen or US green card holder, but has overstayed in the US (more than 183 days) under the Substantial Presence Test. This category is the most misunderstood. Foreign nationals who breach the US SPT will be treated for tax liability reasons as if they were US citizens.

Definition of ‘183-Day Rule’

The 183-day rule is part of the “substantial presence test” used by the IRS to determine if a non-US citizen or US green card holder person will have to pay taxes in the US — with the determining factor whether a person was present in the US exceeding 183 days in a three-year computational formula — calculator is on a number of websites.

Here we have the crux of our reader’s complaint.

Literally, thousands of Bermuda residents have been and are so heavily connected to the US: travelling in and out, investing in US securities, children at college, starting a US business, purchasing US real estate for rental income, and so on. Number of days of stay calculations were often irrelevant at the time.

Our reader was informed that he had US indicia (of some sort), but stated he has no real affiliation or connection. His bank now requests that he compute his personal US Substantial Presence Test. The results of that math will determine his outcome, defined as a US person filing a US form W-9 and subject to US taxation on a worldwide basis, or a foreign national filing a Form W-8BEN only, just for his limited US income-producing asset.

Can any Bermuda residents avoid this whole tax/residency reporting debacle? Some of you, yes, can individually stay isolated. This means:

• Having been born in Bermuda.

• Never leaving the island.

• Holding only Bermuda currency.

• Having only Bermuda assets.

• Having only a Bermuda Government passport.

• Never having any relatives with other citizenships, investments elsewhere.

• Never buying anything abroad.

• Never investing in anything except local stocks (and bonds, if you can get them).

• Only holding local bank accounts, and term deposits.

• Retiring right here in beautiful Bermuda.

Quiz: how many of you could qualify for the Bermuda resident isolation pattern? Write to me, confidentially. I am willing to bet in these times, very, very few of us.

The rest of us, where we and our family are intricately linked to other countries, other relatives, other investments, and myriad other, sometimes surprising, connections. This is where global information sharing is at today. So, yes, we have to prove who we are, where we are resident, what citizenship(s) we have — if we want to live our financial lives.

Bermuda can never operate in isolation ever again. We are part and parcel and dependent upon inclusion in the global economy where the prerequisite is adherence to global standards of tax and finance reporting.

And, this does mean get used to it.

By the way, the UK, Canada, and other countries in the OECD block also use a similar-type substantial presence test. Be forewarned!

Why all these annoying forms?

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